With the way the market is today it can be difficult to buy or sell a house. Contract for deed sales seems to be what more and more real estate investors are looking into. But when you either enter into a real estate note deal either as a seller or a buyer you need to check to make sure the contract is to your benefit and is well written. Unorganized contracts can cause us a great deal of problems in years ahead, especially if you ever plan cash out that real estate note. That is why it is imperative that both buyer and seller read all clauses in the contract for deed and to be positive that everyone understands all details. Independent real estate investors advise you to hire a reputable real estate attorney to review your contract.
What is the Contract for Deed?
In Texas, or nationwide, a contract for deed assists the buyer in saving money when purchasing a home, money they can draw on for expenses resulting from the real estate purchase. This is when there is an agreement in place and the seller has the title until all the contract stipulations are met. To explain it in laymen’s terms the owner will keep the deed, and do all the financing himself. When all the requirements are met, the seller will release the title, and the deed can be recorded.
When there is a real estate note then in most cases the buyer is allowed to place a small down payment on the house. This implies that buyers wanting to purchase a home do not have to have too much capital.
What becomes of monthly payments derived from a real estate note? The Texas contract for deed has it’s benefits at first, but draw backs will surface later to balance its attraction, as is true in other states as well. Be sure to read the fine print, they will normally charge a high interest rate,and the payments will be higher. Even more so if the contract is for a short time. It is this reason because of which the buyer has to have enough cash flow for being able to pay the monthly payments.
Benefits to the Seller:
The advantages to those placing your notes for sale are numerous.
While our economy is in crisis, this is an easier way to sell your house. Next, over the life of the contract, the seller can report capital gains on taxes, rather than in only the first year. The seller of the home will gain a tax advantage using this method.
Some types of property can only be bought through this type of contract, but it is improbable that with a real estate note you would get a large amount of cash back at closing. If getting that large amount of money in the down payment is more important than the tax savings you will make then this is probably not the right type of sale for you.
It may be that the only way that the buyer and seller of a home can agree on a deal is through an instrument called a contract for deed. So both the parties can get benefited by this. Be certain that the agreement is sound and both the parties have benefits in it.
Kenneth Diesi is a resident of Trenton, TX. He is a real estate veteran for 24 years and counting.